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The Morning Brief: Hedge Funds (Except Maybe One) Celebrate with Netflix

The streaming video pioneer posted strong subscriber growth in Q2, but with a short bet against the company, David Einhorn’s Greenlight isn’t thrilled.

Shares of hedge fund favorite Netflix surged 13.5 percent, to a near-record close of $183.60, after the streaming video company reported strong subscriber growth and several investment banks followed up with increases in their price targets.

For example, UBS raised its target on Netflix from $175 to $190, noting the company reported second quarter subscriber growth that was “way ahead of estimates and guidance.” The bank, which maintained its buy recommendation, pointed out in a note to clients that management attributed its better-than-expected results to greater customer acquisitions and a combination of the ongoing expansion of the internet TV market plus its strong content line-up in the second quarter. Also, every major market recorded an increase in subscriber additions.

Credit Suisse raised its price target from $154 to $190. However, it maintained its neutral rating for valuation reasons. At the end of the first quarter, at least 94 hedge funds held a position in the stock. In addition, David Einhorn’s Greenlight Capital was shorting the stock. In his second-quarter letter to clients, Greenlight asserted before Netflix’s latest earnings report that the company’s key metrics “are all deteriorating and customer acquisition costs are higher.”

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UBS maintained its buy rating and $100 price target on Procter & Gamble but was otherwise not very enthusiastic about Trian Fund Management’s proposal Monday to elect chief executive Nelson Peltz to the board of directors. “Given that Trian does not appear to be arguing for revolutionary change at P&G (i.e, no break-up, no rapid increase in balance sheet leverage), we expect today’s announcement to have only a modest impact on P&G’s stock,” the investment bank stated in a note to clients. The investment bank said it does think the activist’s involvement will boost scrutiny of P&G’s future results and fiscal 2018 guidance, however. Shares of the consumer goods giant rose 1.2 percent to close at $88.64.

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ValueAct Capital sold more than 2.3 million shares of Bioverativ, cutting its stake in the biotech company specializing in developing therapies for the treatment of hemophilia to 3.8 percent.

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Highbridge Capital Management said it owns 4.12 million shares or 9.58 percent of Egalet, a specialty pharmaceutical company that focuses on creating ways to develop opioids and other pain care drugs to make them less likely to be abused.

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Hedge funds are enjoying their longest sustained period of gains in recent years. Preqin’s hedge fund benchmark rose 0.57 percent in June, its eighth straight profitable month. This exceeds the seven-month positive performance streak from March 2016 through September 2016. As a result, the benchmark is up 4.87 percent for the year, the best first-half performance since the first half of 2009. Equity strategies led the way in June, gaining 0.91 percent. They are up 13.62 percent for the most recent 12-month period. The best 12-month performer is event driven strategies, up 14.11 percent.

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